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Delta-Lawyer, Attorney
Category: Legal
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Experience:  10 years practicing IP law and general litigation
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I am a director of a non-profit religious ministry started

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I am a director of a non-profit religious ministry started by a family in the early 90's. The wife died suddenly in 2003. The non profit currently holds and pays for a life insurance policy for the husband with his 2 children and the non-profit as beneficiaries. There is a loan on the books which started at $350,000 which has been paid down to $202,900. This is why, I believe, there is a life insurance policy on the husband.

The life policy is a term of $250,000 with the non-profit as the beneficiary. Then there is a cash policy of approx $500,000 that has the 2 children receiving $250,000 and the non-profit receiving the other $250,000

Approx 1/3 of our income is derived from donations, 1/3 from book sales in our store and 1/3 from conference registrations. It was brought to our attention by a canon lawyer friend that this life insurance policy which the non profit is paying for may not be legal.

What can you tell me?

I hope this message finds you well. This is an interesting question and one that has been discussed by the US Congress in 2010. Here is a link to a report before Congress on the topic:

The large issue is avoidance of inurement. Inurement is when someone within the non-profit benefits more than they have contributed to the non-profit. When public interest money results in private gain (potentially like using charity money to ultimately pay individual beneficiaries of the non-profit), you may run afoul of the law.

The issue is private gain within the organization when it comes down to it. As such, the children being beneficiaries of the life insurance policy that is paid for by the non-profit is a non-starter and should be stopped. If the father wants to purchase a separate life insurance policy with his own money (even if that money comes from salary derived from the non-profit) that is fine. However, the children cannot be beneficiaries as they are currently situated.

The issue of the term policy on the father with the charity as the beneficiary is not as clear, but still may have some issues. The issue is using charity money to purchase the policy. Once again, if the father were to have a life insurance policy with the charity as the beneficiary, then there would be no issue (even if the money paid for the term is first paid to him as a salary). In reality, it is about perception as much as it is about reality, which is often the case in dealing with the IRS. The same is the case for the cash policy with the charity as the beneficiary. As stated above, this is a little more tenuous than the kids getting money, but nevertheless, the best laid plan in order to make sure that everything is above board would be to have the father pay for these with his own money and have the beneficiaries be what they current are as we sit here today.

One way to accomplish this may be to increase his salary, if necessary, to enable him to make the extra payments. You would specifically state that as why you increased his salary, but that would be one way to handle the situation and be in the clear from the perspective of the IRS. The issue now is the charity paying directly for the policies. This is an issue you want to avoid, if at all possible.

Let me know if there are any other questions or comments.

Best wishes going forward and best wishes with your ministry!
Customer: replied 4 years ago.

One followup. The husbands name is XXXXX XXXXX the policy also, I forgot that point.


The policy has both the non-profit name and his name listed.


He does not get any salary. My thought as there is this loan he has against the non-profit it to pay him a loan payment in the amount of the premium and have him pay the policy. This sounds like your recommendation also.





Bryan, your last comment is exactly on point. I think that will work just fine. You want to protect the non-profit while keeping the life insurance policy in place too. I think this will accomplish both and be legally defensible at the same time.

The husband's name on the policy is really of no great consequence if view of the last point.
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Customer: replied 4 years ago.

Thank you very much! This helped a great deal.




No problem, Bryan. Keep me in the loop if any other issues arise.

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